How Can a Recurring Payment Plan Benefit Your Law Firm?

How is a recurring payment plan a potential solution for your billing cycle?

What’s the one billing problem that’s often ignored?

The missed billing cycle. If you’re managing your firm know
what I’m talking about. Lost income due to a missed billing cycle.

This occurs for a variety of reasons.

Law firms routinely forget to send invoices to clients. Or
they forget to follow-up with those who don’t pay. Some firms bill at the end
of the month only to have clients pay (if they’re lucky) at the beginning of the
next month.

Would a recurring payment
plan fix these problems?

Absolutely.

The usual benefits are an obvious draw for law firms. These
benefits are consistently mentioned for a reason. They provide law firms with
the foundation they need to build a stable organization. Recurring payment
plans, when used appropriately, make feast and famine cycles a thing of the
past.

More predictable cash flow. You and
your clients settle into a routine. You bill at a specific time each month,
often with a predetermined budget or range. Clients pay you automatically at a
set time each month.

Decreased collections activity. If
you’re a business-to-consumer or small business attorney, recurring payment
plans are a must. Why? Because according
to economist Robert Reich, 8 out of
10 people live paycheck to paycheck. Payment upfront (via retainer) is the
golden rule. Refuse to offer recurring payment plans and, at some point,
clients will stop paying. A recurring payment plan reduces collections
activity, increasing firm cash flow.

Value-driven
client relationships. A financial routine shifts everyone’s attention to
the value and outcomes received by the client. A recurring payment plan reduces
the attention placed on the bills and payment. Yes, clients will still be
focused on their bill. But that bill will be broken up into small, bite-sized
pieces clients can manage.

Law firms become scalable. A payment
plan gives your firm a certain amount of predictability. This is crucial for firm grown. The more predictable your
receivables, the easier it is for your firm to raise capital, attract partners
and grow your firm.

You’re probably already familiar with these benefits. Even
if you aren’t, it’s not all that hard to figure out, is it? Here’s the thing
about these benefits. They’re not the most valuable part of a
recurring payment plan.

The most valuable components
sidestep money

The most important benefits improve your financial standing
dramatically but they accomplish it indirectly. This sounds strange, doesn’t it?

It’s true though.

Here are three hidden, but more valuable benefits to
adopting recurring payment plans in your firm.

Hidden benefit #1: Clients
are trained properly

The attorney/client relationship is very similar to a
parent/child relationship. Your clients are in
a vulnerable position. They’re trusting you to advocate for and champion their
interests. A recurring payment plan trains your clients to behave in a specific
way to ensure their matter is handled smoothly/well.

You can do this in several ways:

Offer clients a set price or billing structure
that’s easy to follow (good)

Provide clients with a recurring payment
schedule for their matter (better)

You provide your clients with statements verifying the
amounts they’ve already paid. This requires that you work to build more trust
upfront during your intake process but it’s well worth it as you’ll see with
the next benefit.

Hidden benefit #2:
Client loyalty + revenue goes up

Which client is more likely to stay? Richard a client who pays a $17,000 retainer or Geoffrey who
pays $2,450 per mo ($29,400 annually)? Give up?

It’s Geoffrey.

Richard will feel a burning desire to get his money’s worth
but the pain of his initial purchase (e.g. the potential for loss) will
decrease with time. Geoffrey on the other hand
will feel the need to get his money’s worth each and every month. He’ll ask you
or more help, which will increase loyalty over time. Why?

“The extent to which customers
use the products they’ve paid for determines whether they will repeat the
purchase.” John
T. Gourville

The more your clients consume – the more engaged they are,
the more questions they ask, the more assistance they require – the more likely
they are to continue working with your firm.

Hidden benefit #3:
Circumvent client games

You know the one.

Your client feels their case/matter won’t be resolved in
their favor so they decide to stop paying. It makes sense in their head – why
pay you if they’re going to lose and be forced to pay the other side? A
recurring payment plan circumvents this issue.

Clients spend less money upfront but pay regularly for your help

If they fail to pay their recurring payment plan
they could lose your support at an inconvenient, catastrophic or unpredictable
moment. A recurring payment plan can also circumvent piecemeal billing,
providing firms the structure and predictability they need to retain quality
clients.

A recurring payment plan takes advantage of the
sunk cost bias. It’s a tendency people have to irrationally follow through on
an activity that fails to meet their expectations due to the amount of time
and/or money invested. The sunk
cost bias increases in strength over time. The longer the relationship, the
more money spent, the more reliant clients are on you – the more likely they
are to continue paying for your help.

Hidden benefit #4:
You (semi) productize your firm’s services

Productization requires specialization. If you’re a
multi-purpose firm a recurring payment plan can work but it will also require a
lot more work. Specialization with a few practice areas is key. If you focus
exclusively on family, tax or intellectual property law you can productize your
services using recurring payment plans as a delivery framework.

A recurring payment plan comes with hidden benefits

Firms are able to avoid the headaches and hassles that come
with missed billing cycles. They’re able to train their clients to do business
their way. To scale and grow their firm in a way that makes financial sense.

It’s an obvious draw.

With the right structure, you’ll have the client loyalty,
financial predictability and value-driven relationships your firm needs to grow.